Part of what makes investing in real estate so intriguing for newbie investors (and seasoned veterans alike) is its dynamic nature. Property values are not stagnant, and in the case of multi-family rental properties, owners have the power to exert direct control over improving their property’s valuation.
If you have plans to jump into the real estate market in Franklin County, Ohio, it’s incumbent upon you to understand the valuation process for multi-family properties. In contrast to single-family residences, the market value for rental properties is determined a little differently.
Calculating Market Value for Multi-Family Investment Properties
There are a few common approaches to determining the value of multi-family properties in Columbus, but frequently investors use the income approach, especially for valuing income-generating properties like multi-family investments.
Whereas single-family residential property values are based on comparable sales (i.e., the price you can get someone else to pay for the home), the focus for those looking to invest in real estate is on the property’s net cash flow potential.
Calculating the market value for multi-family properties requires investors to look at two variables:
- The property’s net operating income (NOI) – this is the gross income generated by the property minus any expenses, and
- The capitalization rate (a.k.a. cap rate) – this indicates the rate of return that is expected to be generated on a property.
The formula for assessing value looks like this:
Current Market Value = NOI / Cap Rate
The expense calculation for NOI doesn’t include debt service or loan payments. Rather, it’s all related to operational expenses because different owners use a variety of capital structures to finance their properties. Excluding loans and interest rates when determining a property’s value makes it easier to compare multiple properties.
Strategies to Improve NOI in a Multi-Family Property
Because a multi-family property’s value hinges on its net operating income, it pays to do everything you can to boost NOI. This includes the following:
- Ensuring that rent rates are in line with the market
- Standardizing whenever and wherever possible
- Reducing your vacancy rate by leasing to good tenants only
- Auditing your operating expenses
- Optimizing maintenance
Lastly, it’s worth considering the ways in which a professional property management company can help you increase NOI and decrease operational expenses. Hiring experienced professionals who know the market and industry best practices is one of the easiest steps you can take to save money and time. Many, like ours at RL Property Management in Columbus, will also manage and run reports for you, which you can then draw upon as you make ownership decisions going forward.
To learn more about owning rental property in Central Ohio, get in touch with us at RL Property Management. Our team manages more than 600 units in the greater Franklin County area, and we have the expertise and professionalism to help you get the most out of your strategic investment.
